SMITH BARNEY: NIKE DOWN, REEBOK UP

NEW YORK — Nike stock, in a storm of trading, tumbled 4 1/8 to close at 55 Monday on the New York Stock Exchange after Smith Barney Inc. analyst Faye Landes downgraded Nike to neutral from outperform, and upgraded Reebok International Ltd. to outperform from neutral.
Reebok stock rose 1 1/4 to close at 46 3/8.
With some 13.5 million shares traded, Nike’s stock was the most active on the NYSE.
In a research note, Landes said the downgrade follows a visit to Hong Kong and Southern China last week, where Smith Barney learned that in recent weeks Nike has been lowering its forecasts to its plants.
“We have learned from five separate sources, including both competitors and suppliers, that Nike has instructed its plants in China and Indonesia, its two largest countries in terms of sourcing, to lower footwear production from previously specified levels beginning in May and through June and July.” Footwear accounts for about 66 percent of total company sales, according to Landes. Executives at Nike could not be reached for comment.
It remains possible that Nike will achieve earnings estimates, “especially as the apparel business remains quite strong,” the report said. While Landes is maintaining her estimates, she is revising the target price to $55 from $78.
Landes has also upgraded Reebok with a target price of $50. “While we believed that Reebok is by no means the best-run company in the athletic footwear industry, it is clear that its efforts to become more focused are bearing fruit.” Landes cited the success of several shoes.
Additionally, Reebok stands to benefit from any hiccups at Nike and will “take advantage of the production capacity freed up by Nike’s lowering of its orders in recent weeks.”
Landes added, “Should demand for Nike footwear decelerate in the U.S., Reebok is likely to be a primary beneficiary.”
For the nine months ended Feb. 28, Nike earned $640.1 million, or $2.16 a share, on sales of $6.8 billion. U.S. athletic apparel sales were $1.1 billion for the nine months.
For the year ended Dec. 31, Reebok earned $139 million, or $2 a share, on sales of $3.5 billion.

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